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1. What is the purpose of the Global Incentives for Trading (GIFT) programme?
The Global Incentives for Trading (GIFT) programme, launched in collaboration with the Malaysia Petroleum Resources Corporation (MPRC), is aimed at positioning Malaysia as a regional trading and storage hub for oil and gas including other key commodities such as minerals, agriculture products, refined raw materials, chemicals, base minerals and coal.
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2. What is the Labuan international commodity trading business?
A Labuan international commodity trading business is the trading of physical and related derivatives of petroleum and petroleum-related products including liquefied natural gas (LNG), minerals, agriculture products, refined raw materials, chemicals, base minerals and coal. Labuan international commodity trading companies use Malaysia as their international trading base to undertake international commodity trading business in Labuan IBFC.
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3. How to apply and what are the conditions for licence under the GIFT programme?
The Labuan international commodity trading company (LITC) must have sufficient capital/working funds that commensurate or are in accordance with its operations and activities. Upon licensing, the LITC must ensure the following:
- Indicate clearly on its letterhead, stationery and other documents including signage containing its name that it is licensed as a “Labuan International Commodity Trading Company” under the Labuan Financial Services and Securities Act 2010, together with its licence number
- The business is conducted with proper corporate governance and has a risk management framework in place; and
- Is expected to comply with other requirements of the Labuan Companies Act 1990, the Labuan Financial Services and Securities Act 2010, the Labuan Business Activity Tax Act 1990 and other relevant laws, whichever is applicable.
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4. What are the post licensing requirements for an LITC?
LITC must comply with the following conditions after the granting of its licence and commencement of its business:
- Achieve annual minimum turnover of USD50 million;
- Incur minimum annual business spending of RM3 million payable to Malaysian residents in Malaysian Ringgit. For the purpose of complying with tax substance requirement, out of this amount, at least RM100,000 must be spent/incurred for its operations in Labuan; and
- Employ at least three professional traders that fulfill the following requirements. For the purpose of complying with tax substance requirement where two full time employees (FTE) are required, these 2 FTE may not necessarily be the professional traders but they are required to be based in Labuan:
- The Principal officer or any person performing a senior management function who would be principally accountable for:
- making decisions that affect the whole, or a substantial part of the LITC business;
- implementing and enforcing policies and strategies approved by the LITC’s Board of Directors including Head of Department or any equivalent designated person; or
- internal controls and processes of the LITC.
- These professional traders shall be involved in any one of the following areas:
- Trading;
- Risk Management;
- Procurement; or
- Sales & Marketing.
These professional traders shall be residents of Malaysia in a calendar year for the year of assessment under the Income Tax Act 1967 (ITA). -
5. What are the permitted activities under the GIFT programme?
The permitted activities include buying, selling and /or broking of physical and related derivative instrument of petroleum and petroleum-related products including liquefied natural gas (LNG) as well as other key commodities such as minerals, agriculture products, refined raw materials, chemicals, base minerals and coal.
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6. Can the LITC operate out of Labuan but in Malaysia?
The LITC is allowed to establish its operational office(s) and operate anywhere in Malaysia but it must have its physical office in Labuan to house its 2 FTE to manage the daily operations of the activities out of its Labuan office.
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7. What is the Corporate Tax for LITC?
The rate of tax imposed is 3% of audited net profits.
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8. Are there any forms of indirect taxes applicable on an LITC?
Labuan is a duty-free zone, hence there are no indirect taxes.
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9. What are the fees payable by LITCs in Labuan LIBFC?
The fees payable are illustrated in the table below:Type of FeesAmountProcessing FeeRM1,000USD350Annual FeeRM40,000USD13,000All licensees are required to pay to Labuan FSA annual licence fees on or before 15 January of each year.
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10. Effective 17 April 2020, Labuan company that wants to trade in Non-Petroleum Commodities are required to be licensed under the GIFT programme. Is this understanding correct?
Post 17 April 2020, new Labuan companies that intend to trade in Non-Petroleum commodities are required to be part of the GIFT programme.
Apart from the tax incentives as accorded under the Labuan Business Activity Tax Act 1990 subject to fulfilment of the tax substantial activity requirements, the non-deductibility rules under P.U.(A)375/2018 dated 31 December 2018 is not applicable to transactions between LITC and Malaysian residents. -
11. For the Non-Petroleum LITC that have surrendered its licence arising from previous Guidelines issued on 8 March 2018, will it be required to be re-licensed and to comply with the revised Guidelines issued on 17 April 2020 immediately? Is there any transition given before it can be re-licenced?
The revised Guidelines have reinstated the non-petroleum commodities to be included back into the GIFT Programme. For regulatory purpose and to enable the company to enjoy the tax incentives under GIFT Programme, the non-petroleum LITCs that have surrendered their licences should submit its application for licence as soon as practicable.
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12. If a LITC has just been licensed in November/ December 2019, does it need to meet the annual quantitative requirements of Turnover, Domestic Spending and Professional Traders as well as Tax Substantial Activity Requirements?
For regulatory purpose, the policy expectation on the compliance to the revised Guidelines would be made on practical basis i.e. assessment against a full year’s operation as regards the annual quantitative requirements.
However, for the purpose of complying with tax substantial activity requirements, once licensed, it is deemed to have commenced operation and is subjected to the said requirements. For annual operating expenditures however may be pro-rated on a 12-months basis. -
13. What will happen should LITCs are unable to meet the operational requirements under Paragraph 6 of the revised Guidelines?
LITCs that are unable to achieve the operational requirements under the revised Guidelines would be treated as non-compliant to the said Guidelines and be dealt with accordingly under the Labuan Financial Services and Securities Act 2010. Notwithstanding this, the LITCs may write to Labuan FSA if they foresee that they are not able to meet any of the operational requirements. Labuan FSA may consider the application based on the merit of each case
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14. Is the role of a Principal Officer (PO) can be considered as Professional Trader?
The definition of Professional Traders has been expanded under the revised Guidelines in which Principal Officer and any officer performing senior managerial functions in specified areas may also be recognised as Professional Traders.
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15. As per Para. 6.7 of the revised Guidelines, can the LITC undertake other business apart from the trading of permissible commodities under the said revised Guidelines?
Para 6.7 is to cater for LITCs that are undertaking businesses that are ancillary to the trading of permissible commodities such as leasing, trading, consultancy etc. Hence, proper segregation of accounts is required.
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16. With the issuance of Circular on revised substantial activity requirements for LITC dated 29 April 2020, does this mean that the LITC needs to comply the following: (1) 3 professional traders (to be based at its operational office in any parts of Malaysia) AND 2 full time employees (to be based at its physical office in Labuan)?; and (2) annual local spending of RM3 million (in Malaysia) and RM100,000 (in Labuan)?.
The LITCs are still allowed to operate in any parts of Malaysia. For the purpose of complying with the tax substantial activity requirements to enjoy the benefits accorded under the GIFT programme, Labuan FSA wishes to further clarify the following:
- the 2 full time employees (to be based at its physical office in Labuan) need not be the professional traders. The said employees are expected to manage the daily operations of the activities out of its Labuan office. For LITC that have already had its existing professional traders and wish to maintain them at its operational office outside Labuan, the LITC is required to hire additional 2 employees (any level) to be based in Labuan; and
- the RM100,000 is part of the RM3 million annual operating expenditures required under the revised Guidelines. The annual operating expenditures may be pro-rated on a 12-months basis upon commencement of LITC’s operations.
